The evolution of the TV content production sector

Transcription

1 The evolution of the TV content production sector A discussion document Prepared for Ofcom by Oliver & Ohlbaum Associates Ltd September 2014

2 Introduction Definitions and caveats Data on the UK external and UK independent production sector The data on the UK indie production sector includes data for non-qualifying independents, i.e. previously independent productions groups who are now owned by broadcasters (such as Shed, Shine and Carnival). This is to maintain consistency between data sources over time and the available breakdown of data from public sources. The indie data does not include external production by traditional broadcaster production units for other broadcasters (such as ITV Studios, BBC Production) The report uses the following definitions and distinctions for external content production: External production Output produced both by indies and by a broadcaster related production house for another broadcaster (NBCU, Sony, Discovery, ITV etc) Non-qualifying independent Previously independent super indie production groups now part of a broadcaster related group (Shed and Shine) Future non-qualifying independent Recently purchased super indie production groups that will now be part of a broadcaster related group (All3Media, Endemol) Programmes made within 2 years of being commissioned retain independent status if an independent production company loses its qualifying status after commissioning has taken place 2

3 Contents The evolution of the UK TV content production sector Appendix - Main trends in originated output - The UK external sector - Terms of Trade 3

4 The evolution of the UK TV content production sector The independent sector has experienced a significant increase in revenues The UK indie sector showed strong growth up until The recession put pressure on UK commissioning budgets with indies relying on international revenues. UK commissioning bounce back in 2012 boosted total sector income Independent producer TV-related revenues* million REVISED METHODOLOGY CAGR ,000 2,500 2,000 1,500 1, , , ,227 2, , , , , OTHER UK PRE-PRODUCTION OTHER INT L INCOME* 6.9% 6.6% (23.0%) 39.0% 13.0% (9.0%) 1.1% 22.0% - INT L SALES OF UK FINISHED PROGRAMMES* 20.0% UK RIGHTS INCOME* 4.7% 6.7% 1, , ,356 1,247 1,539 1,668 PRIMARY UK COMMISSIONS 5.5% 2.0% (2005 Census) 2006 (2007 Census) 2007 (2007/2008 Census) 2008 (2010 Census - restated) 2009 (2010 Census - restated) 2010 (2011 Census) 2011 (2012 Census) 2012 (2013 Census) 2013 (2014 Census) *Definitions: Other international income - revenue from companies overseas operations and any primary commissions received from non-uk broadcasters; Int l sales of UK finished programmes - sales of first run UK programming sold as finished product abroad; UK rights income UK secondary sales, publishing, formats, DVD sales etc. Source: Oliver & Ohlbaum analysis, Pact census 4

5 The evolution of the UK TV content production sector TV exports have seen significant growth Following the introduction of Terms of Trade there was an initial significant boost to TV exports followed by healthy growth in more recent years. Index (1998 = 100) Terms of Trade Introduced CAGR 9% CAGR 22.2% CAGR 12.6% Source: BTDA / TRP / UKTI / PACT, Oliver & Ohlbaum analysis 5

6 The evolution of the UK TV content production sector There has been some consolidation of mid-tier indies There was some consolidation into mid-tier indies up until 2010/11. The distribution of companies has remained stable in more recent years Per cent Distribution of number of indie companies by turnover brackets % 90% Some consolidation of smaller companies into mid tier 80% 70% 55% 53% 52% 50% 50% 50% 1-5m Small amount of consolidation at top end of the sector 60% 50% 40% 30% 21% 21% 19% 16% 15% 15% 5-10m 20% 12% 15% 17% 20% 22% 22% 10-25m 10% 0% 6% 6% 7% 9% 9% 9% 5% 5% 5% 4% 4% 4% m 70m+ #Indies* *In addition to the companies above, we estimate there are circa 500 small prodcos with a turnover of less than 1m Source: Broadcast Magazine, Oliver & Ohlbaum analysis 6

7 The evolution of the UK TV content production sector The sector has attracted external investment, now consolidated in trade buyers There has been a much higher concentration into non-qualifying ownership than vice versa. Prior to 2008 most consolidation did not affect indie status as this was indies buying other indies, creating the so called super indies SONY Victory Television, Left Bank Pictures* NON- QUALIFYING ITV 12 Yard DISCOVERY Betty TV ITV So Television, Big Talk**, The Garden Productions DISCOVERY/LG All3Media Programmes made within 2 years of being commissioned retain indie status if an indie prodco loses its qualifying status NBCU Carnival Films TIME WARNER Shed 21 CF Shine NBCU Monkey Kingdom, Working Title, Lucky Giant, Chocolate Media 21 CF/Apollo Endemol SKY Love Productions QUALIFYING BBCWW Left Bank Pictures*, Hardy & Sons, Cliffhanger Productions, Clerkenwell Films, Baby Cow, Big Talk**, Sprout Pictures RTL Fremantle All3Media Cactus TV Source: Oliver & Ohlbaum analysis *BBCWW retains a smaller minority share in Left Bank Pictures after it was sold to Sony **BBCWW sold stake in Big Talk 2013 when purchased by ITV 7

8 The evolution of the UK TV content production sector Revenue is concentrated among the biggest indies The top 6 indie production companies represent almost 45% of total revenues Total indie revenue bn Indie revenues by turnover band share of revenue and number of companies < 1m 1-5m m 5-10m m m+ 0 Number of indie companies Source: Broadcast Magazine, Oliver & Ohlbaum analysis 8

9 The evolution of the UK TV content production sector Increased share of UK commission spend, smaller indies are claiming more share The largest indies share of UK commission spend has declined over the last year, i.e. the so called super indies with more than 70m in turnover. The indies in the 25-70m turnover bracket have gained the most from this shift in spend Share of spend on UK externally produced primary commissions turnover band of producer, 2008 to 2013 Percent 100% 90% 80% 70% 3% 4% 0% 0% 3% 0% 0% 6% 6% 4% 0% 5% 4% 7% 2% 3% 6% 13% 11% 29% 10% 16% 14% Less than 1m 1-5m 5-10m 10-25m 60% 32% 33% 36% 29% 40% 25-70m 50% 23% 40% 30% 20% 46% 44% 40% 46% 47% 37% 70m+ 10% 0% Note: *Primary commissions expenditure data excludes all expenditure on news and sports programmes and rights but includes expenditure on all regional and nations and regions programmes Source: Ofcom Communications Reports, BARB, Company reports, O&O / Pact Census, Oliver & Ohlbaum analysis 9

10 The evolution of the UK TV content production sector Indies have been able to generate secondary revenues on rights retained Indies (including currently qualifying indies and current and future non-qualifying indies) generate approximately 300m in content rights from UK commissions. Indie revenues from UK content rights by category Illustrative revenue windows for UK content rights 303m 100% 1% 3% REPEAT USE OF PROGRAMMING OTHER MERCHANDISING 90% 14% OTHER* 80% 70% 60% 0% 5% 5% 1% 3% 7% MOBILE FORMATS NEW MEDIA PUBLISHING DVD & VIDEO SALES DISTRIBUTION ADVANCE 1 st TX Primary licence commercial holdback (typically 2 years, can be longer) DTO (from TX+7; May be TX+1 in some cases) 50% DVD release (tends to be seasonally driven) 40% 30% 51% INTERNATIONAL FINISHED PROGRAMME SALE SVoD release UK secondary release 20% Months 10% 9% UK SECONDARY TV SALES 0% * Other includes advertising, PRTS, and other activities such as music publishing, live events, gambling, product integration, ancillary & digital rights and cable relay Source: Pact census, Oliver & Ohlbaum analysis 10

11 The TV content production sector The evolution of the UK TV content production sector Indie sector profitability has seen some recovery, but remains challenging Sector average net margins improved only slightly in 2013 Percent Net margins, 2004 to % 13.0% 12% 10% 9.3% 8% 7.0% 8.4% 8.0% 8.5% 6.7% 6% 5.0% 5.3% 4% 2% 0% Source: Pact census, Oliver & Ohlbaum analysis 11

12 Contents The evolution of the UK TV content production sector Appendix - Main trends in originated output - The UK external sector - Terms of Trade 12

13 Trends in originated output Growth in spend on UK content has been modest in recent years There has only been modest growth in spending on UK content since This growth has been on the back of increased multichannel spend on UK content rather than PSB spend, although PSBs remain the main spenders Spend (incl news and sport*) on UK content by main PSB networks and multichannels m 3,500 CAGR ,000 2,500 2, ,079 2, , , MC SECONDARY RIGHTS MC FIRST RUN COMMISSIONS PSB SECONDARY RIGHTS 2.0% 7.2% 11.4% (5.0)% 2,000 1,500 1,000 2,157 2,255 2,239 2,323 2,188 PSB FIRST RUN COMMISSIONS 0.4% * Sport excludes rights for multichannels, inlcudes rights for PSBs Source: Ofcom broadcaster returns, COBA, O&O analysis 13

14 Trends in originated output PSB spend on content has been cut back PSBs have been cutting back on programme spending across the board Content spend by main PSB networks (incl news and sport) m 3,000 2,500 2, , ,700 2, , , ACQUISITIONS REPEATS CAGR (2.2)% (10.8)% (4.9)% 2,000 1,500 1,111 1, ,030 1,058 1,062 FIRST RUN EXTERNAL COMMISSIONS (0.9)% 1, ,202 1,151 1,304 1,209 1,265 1,127 FIRST RUN IN-HOUSE COMMISSIONS (1.3)% Source: Ofcom broadcaster returns 14

15 Trends in originated output Total originated first run output has decreased First run output hours have also declined although with some recovery over the last year. Genre focus has changed in favour of factual entertainment and factual. The cost per hour has been largely static apart from a dip in 2010 First run origination hours (excl news and sport), Hours , All day by channel 11,393 11, , , Channel Channel 4 Hours All day by genre 12, ,393 11,432 10, , , ,174 1,086 1,064 2,048 1,288 1,198 1,370 11, ,191 1,586 Other Children s Drama Factual ITV1 BBC ,391 1,632 1,317 1,713 1,466 1,404 2,298 2,551 2,576 2,719 Current Affairs* Fact Entertainment BBC ,401 3,826 3,226 3,483 3,545 Entertainment Cost per hour K * The Increase in Current Affairs output in non-peak 2013 is mainly down to programmes such as Cowboy Trap, The Sheriffs are Coming and Don t Get Done Get Dom on the BBC Source: BARB, Ofcom, Oliver & Ohlbaum analysis 15

16 Trends in originated output Peak time originated first run output has grown There has been an increase in first run originated peak time output. The genre focus has shifted in favour of Factual programmes. Cost per hour is showing signs of recovery First run origination hours (excl news and sport), Hours 5000 Peak time by channel Hours 5000 Peak time by genre ,726 3, , ,360 4, Channel 5 Channel , , , ,360 4, Other Current Affairs Fact Entertainment ITV1 BBC , , , Entertainment Drama BBC , ,042 1,152 Factual Cost per hour K Source: BARB, Oliver & Ohlbaum analysis 16

17 Trends in originated output The share of new versus returning commissions has declined The volume of new commissions has declined at an annual rate of 8.3% since 2006 with a slight recovery in Returning commissions have continued to grow over the period UK: New versus returning commissions (excl news and sport), first run output hours on main PSB networks Hours 14,000 CAGR ,000 12,269 11,393 11,432 10,905 11,500 (0.9)% 10,000 8, , RETURNING 2.0% 4,000 2, NEW (8.3)% Source: BARB (Attentional), Oliver & Ohlbaum analysis 17

18 Contents The evolution of the UK TV content production sector Appendix - Main trends in originated output - The UK external sector - Terms of Trade 18

19 The UK external sector The major independent producers have recovered their output hours on PSBs Following a drop between 2006 and 2009, the major independent producer groups have recovered their volume of first run origination output on the main UK networks UK: First run output hours on main PSB networks by independent producer group* Hours Endemol and Fremantle have both seen a decline in programming output on the main UK networks since ,500 3,000 2,500 2,000 1,500 1,000 2, , , ,430 3, NBCU SHED FREMANTLE ZODIAK ALL3MEDIA SHINE All3Media made good recovery in It lost significant hours in 2012 with the sell back of Cactus TV to its founders Shed, Shine, Zodiak and NBCUniversal have all improved their position, albeit coming from a lower base Shine s big increase in hours from 2010 to 2011 was due to the commissioning of chat/current affairs shows Live with Gabby, The Vanessa Show and The Wright Stuff Extra, although it experienced a drop in , , ENDEMOL *Measured according to prodcos that were part of the groups in each respective year Source: BARB (Attentional), Oliver & Ohlbaum analysis 19

20 The UK external sector There has been some movement in the use of external commissions by networks External hours on the BBC have increased slightly, while there has been a decrease in external hours on ITV. Channel 4 and Channel 5 have remained largely unchanged in recent years External commissioning share of all hours to 2013 Share of hours 100% 100% 100% 100% 99% 100% 99% 100% 99% 97% 90% 80% 82% Channel 4 70% 60% 50% 42% ITV Channel 5 40% 30% 23% 25% 33% 23% 35% 26% 33% BBC 30% 28% 20% 10% 0% Source: BARB (Attentional), Oliver & Ohlbaum analysis 20

21 The UK external sector The use of external commissions by networks excl news and sport The trend remains when looking at qualifying hours, excluding news and sport External commissioning share of hours (excl news and sport) to 2013 Share of hours 100% 90% 100% 100% 100% 100% 100% 98% 99% 99% 94% 92% Channel 4 80% 70% 60% 50% 40% 34% 54% 43% 39% 39% 47% ITV 48% 46% 42% 42% BBC Channel 5 30% 20% 10% 0% Source: BARB (Attentional), Oliver & Ohlbaum analysis 21

22 The UK external sector The share of new commissions by the major independent producers has fallen The major independents have seen their share of new commissions fall significantly since 2006 (with the exception of NBCUniversal). Shed and All3Media have remained more stable UK: New commissions, first run output hours on main PSB networks by independent producer group Hours 1, NBCU FREMANTLE ZODIAK SHED ENDEMOL SHINE ALL3MEDIA CAGR % (23.7)% (13.3)% 3.9% (12.2)% (4.3)% 2.4% Fremantle, Zodiak and Endemol have seen the biggest drop in new commissions from the main networks. All other major indie groups have performed better than the market average growth. All3Media has recovered somewhat in 2013 and continues to be the biggest single supplier of new indie output. The market share of the next four groups has evened out in the last few years. Source: BARB (Attentional), Oliver & Ohlbaum analysis 22

23 The UK external sector Genre specialisms of independent producers a move out of entertainment There has been a move out of entertainment and into factual entertainment specialism among indie producers. Factual has regained some ground in recent years Hours All day by genre 100% 90% 80% 70% 60% 6% 7% 2% 7% 25% 11% 5% 3% 6% 12% 18% 3% 3% 7% 12% 10% 10% 1% 1% 3% 5% 7% 8% 15% 17% Other Children s Current Affairs Drama Factual 50% 40% 37% 28% 34% 29% Entertainment 30% 41% 20% 10% 0% 26% 29% 30% 31% 12% Factual Entertainment Hours 6,056 6,065 6,009 6,025 6,211 The increase in other in 2010 is largely down to an increase of Nightscreen programming and The Zone Netplay / QVC on ITV Source: BARB, Oliver & Ohlbaum analysis 23

24 The UK external sector Genre specialisms of major independent producer groups (i) Since 2006, Endemol has seen it return to predominantly having entertainment shows commissioned (mostly Big Brother), whilst Fremantle has diversified away from entertainment towards factual entertainment Major independent producers: Genre mix*, 2006 versus 2013: Endemol and Fremantle Share of hours 100% 90% Other 7% 2% 4% Current Affairs 2% 3% 12% Drama 7% Other Drama Factual 26% Factual Entertainment 80% 29% Children s 13% Factual Entertainment 70% 60% 20% Factual 50% 40% 38% 84% 74% Entertainment 30% 20% 51% Entertainment 10% 26% 0% ENDEMOL FREMANTLE Note: Genre mix on 5 main PSB networks only Source: BARB (Attentional), Oliver & Ohlbaum analysis 24

25 The UK external sector Genre specialisms of major independent producer groups (ii) All3Media and Zodiak have both had more hobby and leisure output commissioned, moving away from entertainment, factual and drama, and in All3Media s case sport Major independent producers: Genre mix*, 2006 versus 2013: All3Media and Zodiak Share of hours 100% 90% 80% 20% 1% Children s 22% Other Current Affairs Drama 13% 3% 1% 5% 1% 4% 1% Other Children s Current Affairs Drama 70% 24% 23% 48% Factual Entertainment 60% 50% 53% Factual Entertainment 40% 23% 10% Factual 30% 49% 20% 13% 13% Factual 36% Entertainment 10% 17% 11% Entertainment 6% 0% ALL3MEDIA ZODIAK Note: Genre mix on 5 main PSB networks only Source: BARB (Attentional), Oliver & Ohlbaum analysis 25

26 The UK external sector Genre specialisms of major independent producer groups (iii) Shed is still mainly focussed on factual programming, whilst Shine has seen most commissions coming from its entertainment strands. Both have seen a drop in drama output Major independent producers: Genre mix*, 2006 versus 2013: Shed and Shine Share of hours 100% 90% 3% 4% Other 5% 3% Current Affairs 1% Children s 9% 19% Drama 1% 3% Other Drama 80% 23% 18% 30% Factual Entertainment 70% 60% 17% 18% Factual Entertainment 7% 6% Factual 50% 40% 45% Factual 30% 53% 61% 60% Entertainment 20% 10% 14% Entertainment 0% 0% SHED SHINE Note: Genre mix on 5 main PSB networks only Source: BARB (Attentional), Oliver & Ohlbaum analysis 26

27 The UK external sector All3Media Key deals over time Over the longer term, qualifying status has only been affected by broadcaster / studio deals in recent years. Prior to this was the creation of the super-indies (indies buying other indies) which did not affect indie status Management buy out of Chrysalis TV Purchased by Discovery / LG Bentley Productions North One Cactus TV Company Pictures Lion Television Lime Pictures Maverick Objective Productions Zoo Productions Studio Lambert One Potato Two Potato Optomen Cactus TV John Stanley Productions Little dot studios Apollo 20 27

28 The UK external sector Fremantle Key deals over time The sale of Channel 5 has marked the only significant event of a non-qualifying production group becoming a qualifying indie C5 sold Thames Talkback Boundless Retort Newman Street 28

29 The UK external sector Endemol Key deals over time Purchased by 21 CF / Apollo Initial Zeppotron Cheetah DSP Remarkable Television Tiger Aspect Tigress Artists Studio 29

30 The UK external sector Shine Key deals over time Organic creation Purchased by 21CF Shine TV Shine North Kudos Princess Productions Dragonfly Brown Eyed Boy Bossa Studios Channel Flip 30

31 The UK external sector Warner Bros. Television Productions UK (formerly Shed) Key deals over time Organic creation Purchased by Time Warner Shed Productions Watershed Yalli Productions Shed Media Scotland Ricochet Wall to Wall Twenty Twenty Television Studio Lambert Renegade 31

32 The UK external sector Zodiak Key deals over time IWC Media Touchpaper Television The Foundation Bullseye Productions Lucky Day Productions Red House RDF Television The Comedy Unit Presentable Productions Bwark Productions 32

33 Contents The evolution of the UK TV content production sector Appendix - Main trends in originated output - The UK external sector - Terms of Trade 33

34 Terms of Trade Timeline of key events in the run up to Terms of Trade Prior to ToT the indie sector was highly fragmented and was highly dependent on the main PSB network groups. There was little scope to negotiate on production fees or take strong positions in rights against which to build up an asset base 1982 Channel 4 launch stimulates growth of independent sector 1986 Peacock Committee recommends 40% independent quota 1990 Broadcasting Act introduces 25% independent quota 1993 Independent quotas become a statutory requirement for PSB channels 1997 Launch of Channel 5 as new PSB broadcaster 1996 Broadcasting Act introduces 10% independent quota on DTT channels 1998 Channel 4 agrees out of London quota of 30% 2002 ITC PSR recommends negotiated terms of trade to counter-balance inequality in bargaining power 2004 Negotiated Terms of Trade come in to force 2003 Communications Act mandates broadcaster Codes of Practice 2006 Following Ofcom TPSR, Heads of Terms agreed between broadcasters and Pact for new media rights 1980s 1990s 2000s 1998 Millionaire premiers in the UK produced by Celador 1999 Millionaire premiers in the US on ABC 2003 Chrysalis TV (All3Media) MBI backed by Bridgepoint (Euro 72m) 2001 Pop Idol premieres on UK television 34

35 Terms of Trade Revenue covered by Terms of Trade by window Primary UK commissions continue to constitute the main source of revenue covered by Terms of Trade, although international sales are now as important as UK secondary rights income Indie revenues by window covered by Terms of Trade % 90% 80% 1,334m 1,678m 1,597m 1,876m 1,971m 3% 4% 5% 8% 8% 8% 6% 10% 10% 7% INT L SALES OF UK FINISHED PROGRAMMES* UK RIGHTS INCOME* 70% 60% 50% 40% 89% 90% 85% 82% 85% PRIMARY UK COMMISSIONS 30% 20% 10% 0% * Source: Pact census, Oliver & Ohlbaum analysis 35

36 Terms of Trade Windows and platforms collapsing 1 st TX in originating country Primary licence commercial holdback (typically 2 years, can be longer) DTO (from TX+7; May be TX+1 in some cases) UK commissions DVD release (tends to be seasonally driven) SVoD release (moving earlier) UK secondary release (UKTV) Months 1 st Pay window (moving to 12 months exclusive) US Imports DTO (from 1 st run series end) DVD release (tends to be seasonally driven) Sky use threat of side-loading from DVR to secure more VoD rights, otherwise can use this to limit SVoD window value SVoD release (moving earlier) FTA or 2 nd pay TV window 36